JDR’s Newsletter #4 (Lots of Funding News Edition)

Hello there,

This is a (roughly) weekly newsletter experiment containing links to things I’ve written and made, plus links to other interesting articles, reports and essays I’ve come across.

In case you haven’t already subscribed, you can do so through Tinyletter. You can find an archive of this and previous issues of my newsletter at: http://news.jdr.fyi

Thoughts, opinions and typos are my own.

My blog posts and articles

I was traveling last week and didn’t write anything new, so I decided to spend a bit more time writing about this week’s news and fishing out more links to share.

As an aside, both Portland, ME (where I was last week) and Portland, OR (where I’m at this week for PyCon) are both lovely cities.

My Take on A Few Funding Events

Unprofitable Unicorn With Major Customer Risk Files For $100M IPO

Twilio filed its S1 this Thursday. The provider of VoIP and messaging APIs to business customers like Uber and Box hopes to raise $100 million in its initial public offering. Many tech investors are hoping that Twilio will break open the window for other major tech companies to go public. Apart from Dell-owned SecureWorks, which raised $112 million in its IPO last month, Twilio would be the only other non-healthcare tech IPO so far in 2016.

Good news, right? Maybe not. The company is almost ten years old and has yet to turn a profit, which is not entirely unheard of in Silicon Valley, but Twilio disclosed “uncertainty” regarding future profitability in its filing. Additionally, the company disclosed “a history of losses” including net losses of $26.8 million and $35.5 million in 2014 and 2015, respectively. The company claims to have lost $6.5 million in the first three months of 2016.

Moreover, a full 17% of Twilio’s revenue comes from WhatsApp. According to reporting from Business Insider, Twilio has no long-term contract with Facebook, WhatsApp’s parent company, which means that if Facebook finds an alternative service provider the already unprofitable Twilio would be out over one sixth of its revenue virtually overnight.

Given the adverse market conditions and shaky financial status of the company, I’m skeptical that the IPO will go well for Twilio. But, it’ll give Twilio’s venture investors – Bessemer Venture Partners being the lead on multiple rounds – the liquidity event they and their LPs so badly need right now.

Snapchat Raises $1.8B in Extended F Round. F is For “the Future”.

Earlier in the week, TechCrunch reported that Snapchat was raising more money at around a $20 billion valuation, which is roughly in line with its valuation from previous rounds. In an update to that first story, TechCrunch shared details from Snapchat’s leaked pitch deck and now-released SEC Form D filing:

  • Snapchat raised $1.158 billion of its $1.8 billion Series F round within the last 5 months.
  • The company generated only $59 million in revenue in 2015, and $33 million of that came in Q4’15 alone.
  • Snapchat is projecting 2016 revenue to be somewhere between $250 million and $350 million in 2016 and between $500 million and $1 billion for 2017.
  • Snapchat had 110 million daily active users in December 2015, up 50% from the previous year. Over 55% of those users were outside the US. (Note that DAU numbers have probably grown significantly since December 2015.)

According to other sources:

  • ReCode reported ComScore’s findings that Snapchat has achieved over 65% penetration into the 18-24 year old demographic in the US.
  • ComScore also reported that Snapchat’s monthly time-in-app numbers are second only to Facebook.

So, what to make of this? Seemingly out of nowhere, Snapchat is now the most credible threat to Facebook’s hold on our attention.

Its content format, ephemeral images and videos that disappear after a short while, is almost diabolically well-suited for advertising. Why look away from your screen when you know that whatever you’re watching is going to disappear in a few seconds, or at most 24 hours?

VC investor Mark Suster, who’s also a prolific Snap Story creator and archivist of his own “Snapstorms”, says in his excellent analysis of Snapchat-as-media-phenomenon that “Snapchat is biggest innovation in media right now and the biggest innovator in product design from a user perspective.” Indeed, Snapchat “clicks” with many people, specifically the younger demographic. (This includes Stratechery author Ben Thomson’s 4-year old, who can create and send Snapchats to their mom with little to no interactional friction.)

It also clicks with mobile video consumers. In a profile of Snapchat’s 25 year old CEO Evan Spiegel, ReCode shared that as of the end of April, 2016, Snapchat garners a staggering ten billion video views per day, up fourfold from the previous year. Meaning: on average, Snapchat users consumer almost 80 video clips per day on the platform. And this is before Snapchat’s new media partners have seriously rolled out premium content specifically tailored to the Snapchat format.

Say what you will about it, but Snapchat is not going to be disappearing any time soon.

Observations from Other People

John Light on The Rise of Protocols Over Platforms

Although I think his characterization of major platform providers (the Facebooks, Twitters, Googles and Amazons of the world) as “corporate Death Stars” is a little overwrought, Light does a decent job of explaining the development of open protocols as an alternative to the dichotomy between revenue maximization and more egalitarian cooperative platform models that share revenue or profits with platform members. He suggests that the appeal and utility of open platforms over corporations and cooperatives is that “they are owned by no one”.

What he doesn’t acknowledge is the possibility that some of these “open” protocols end up being more closed and centralized than they appear from the outside. (As I’ve found in previous, currently unpublished work, this is certainly the case with Bitcoin and Ethereum, two major cryptocurrency protocols.) And, although protocols can be “forked and upgraded at-will if they no longer serve the interests of their users,” it’s usually the case that doing so imposes significant switching costs on users. Once a protocol becomes the de-facto standard, it often doesn’t make economic sense for incumbents to upgrade to a different one. As new protocols emerge, though, so does a new crop of upstarts that may upset their predecessors. In this way, innovation and progress in the realm of protocols may be less the dynamic, fluid process that Light and other protocol proponents may want it to be as it is the cyclical, successive process seen in the platform space.

Other news and links

Reddit user rinyfo4 casually explains how to burn your startup to the ground in 15 easy steps.

Pew Research published a very in-depth report on the “sharing economy”. 72% of Americans surveyed have used at least one of 11 different shared and on-demand services. 7% have used six or more. 73% of Americans are not familiar with the term “sharing economy.” 61% don’t know what “crowdfunding” means.

IVP Capital has a set of good questions and a nice Stack-like framework for thinking about change in the evolving TMT space.

The US Senate’s Committee on Commerce, Science and Transportation released a report in 2013 explaining how marketers use big data to target poor people. That report is worth revisiting in light of Google’s recent move to ban ads for payday lenders.

Vanity Fair reports on the “dating apocalypse” being catalyzed by apps like Tinder, Bumble and OKCupid.

HBS’s Shoshana Zuboff’s long-form essay on the hijacking of capitalism by surveillance culture. Touches heavily on advertising and sovereignty of entities like Google and Facebook.

Nicola Bortignon published an epic list of reading materials for startup-oriented people.

Sara Jane Coffee argues quite convincingly that startups may have a drinking problem.

Facebook published notes from its closed conference, Networking @Scale, in which some more details of its urban gigabit wireless networking projects, Terragraph and AIRES. Because Facebook’s networking projects are utilizing currently unlicensed network bands, this signals possible interest by Facebook to build its own proprietary wireless networking infrastructure. This contrasts with Google’s Project Fi, which utilizes network architecture owned by Sprint and T-Mobile.

Daniel Albert writes for n+1 about the ethical issues surrounding self-driving cars. It turns out that ethical questions around automobiles are not at all a new thing.

Emer Coleman on technoethics and the future of work.

Wim Rampen asks not what big data can do for the platform provider, but what big data can do for the user.


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